MANILA, Philippines - The outrage over rising electricity prices has prompted

energy stakeholders to call for amendments to the Electric Power Industry

Reform Act (EPIRA) of 2001, a landmark law that promised reforms in the
power sector.

EPIRA introduced sweeping reforms, including the restructuring of the entire

power industry and the privatization of most state-owned power generation
and transmission assets, which at the time were leaving a heavy dent on state
coffers because of the high costs of maintaining them.

The reforms were intended to foster competition among power players and
bring down electricity prices.

In particular, according to the Department of Energy (DOE)’s briefer on

EPIRA, the goals of the law were to ensure affordable and reliable supply of
electric power.

The law also aimed “to ensure transparent and reasonable prices of
electricity in a regime of free and fair competitions and full public
accountability to achieve greater operational and economic efficiency and
enhance the competitiveness of Philippine products in the global market.”

Furthermore, according to the DOE, the law is meant to protect public interest
as well as establish a strong and purely independent regulatory system to
ensure consumer protection and enhance competition in the electricity
market.

The situation that led to the enactment of the EPIRA had a lot to do with high
power prices, a situation which electricity consumers had to deal with in
December last year.

Prior to the passage of EPIRA or Republic Act 9136, the government

monopolized power generation and transmission.

The law sought to break the monopoly by breaking down the power industry
into different privatized segments. It was the government through the National
Power Corp. (Napocor) that used to hold the monopoly over power generation
and transmission.

“However, in the early 1990s it was foreseen that the national demand for
electricity would increase by nine percent annually for the next ten years,†
said Menandro Abanes, a researcher on Southeast Asian issues in his book,
“Revisiting the 10-year Philippine Electric Power Industry Reform Act of
2001.”

“To meet the predicted demand, 5,000 megawatts was needed,

translating to necessary government infusion of approximately P38 billion
annually into the development of the power industry to curb the shortfall,
without which another power crisis reminiscent of the 1980s and 1990s was
expected,” he said. The government, however, was unable to infuse funds
into Napocor because of a budget deficit that hit P145 billion at the time.
Then President Fidel Ramos, to address the situation, entered into contracts
with independent power producers (IPPs). The contracts later turned out to be
onerous because of the provision that guaranteed the purchase by
government of up to 80 percent of their production.

“By 1994, the Philippines had more IPP contracts than the rest of the
developing world combined,” said Erik Woodhouse in his paper “IPP
Experience in the Philippines” published in the website of Stanford
University.

“Thus, when the Asian financial crisis struck in the late 1990s, the fiscal
and monetary disruption following therefrom had an immediate impact on the
IPP sector in the Philippines, making the take-or-pay or capacity payments
included in the power purchase contracts unsustainable,† Woodhouse
said.

By December 2000, Napocor had accumulated debts of P900 billion, nearly

half of the government’s P2.179-trillion debt. For the government, its only
option was to privatize the power industry.

EPIRA amendments

But Energy Secretary Carlos Jericho Petilla said that given the current
situation, especially the rising power prices, there may be a need to revisit the
EPIRA.

One possible amendment is to allow the government again to enter into power
generation, even just for energy security assets.

“For security asset, the government must be able to own and operate
it,” Petilla said.

Petilla said the ideal situation is for the government to be able to operate a
plant on standby if and when necessary.

“The government will operate the power plant during times of curtailment
or shortage even for just one to two hours,” he said.

He said that if new plants come in, the government plant may stop operating.

However, the EPIRA prevents the government from having its own plant.

He said the solution is to change the law to allow an energy security asset
such as a government-run plant.

At present, the energy department is forming teams to study possible

amendments to EPIRA, Petilla said.

“The DOE will facilitate discussions,” he said.

The target is to file the proposed amendments in the first quarter of the year,
he added.

Stronger ERC

Another possible amendment is to strengthen the Energy Regulatory

Commission (ERC).

“That can be suggested. We are happy to look at everybody’s point of

view,” Petilla said.

Militant groups, which had earlier filed a petition against the record December
2013 generation rate increase of the Manila Electric Co. (Meralco), were
questioning the regulatory capability of the ERC.

“Respondent ERC committed grave abuse of discretion in approving

Meralco’s proposal to pass on to consumers the increase in the
generation cost for November 2013 as it violates its mandate under the
EPIRA to protect the consumers from anti-competitive practices and abuse of
market behavior of industry,” party-list group Bayan Muna said in its
petition.

“It approved the rate increase with haste and without exercising the
required regulatory role, which constitutes grave abuse of discretion,† it
added.

Indeed, as The STAR columnist Boo Chanco, who had worked with the
Ministry of Energy from the ’70s to the ’80s, had pointed out, the ERC
should be able to determine if Meralco had exhausted efforts to keep
generation costs as low as possible.

“When Meralco says it is not its fault because they are just passing
through the cost of the generators they are telling us a half truth. The other
half they are not saying has to do with the fact that there was something they
could have done to keep the generation cost as low as possible. Of course
that is on the assumption ERC is intelligent enough to allow them to,†
Chanco said in a Jan. 10 article.

The ERC insisted it did not err in its regulatory function, saying an Automatic
Generation Rate Adjustment (AGRA) is allowed and established under
EPIRA.

“All told, the ERC respectfully submits that the AGRA mechanism upholds
the principle of full recovery of prudent and reasonable economic costs as
established in Section 25 of EPIRA. Moreover, conscious of the implications
that the rate implications may have on the pockets of the most number of
consumers who are indeed heavily burdened and true its mandate to protect
the interests of the consumers gave clearance for the collection of the
generation cost in a staggered manner without prejudice to the confirmation
and post-validation process which will include a finding of whether the
generation was procured in the least cost manner,† the ERC said in its
comments submitted to the Supreme Court.

New gas fields

Petilla said also said one permanent solution to soaring electricity prices is to
drill for more oil and gas to lessen the country’s dependence on imported
oil.

“The permanent solution is to drill again but we can only do that if we have
a clear signal from the DND (Department of National Defense),† Petilla
said.

China and the Philippines are locked in dispute over some areas in the West
Philippine Sea, including Recto Bank covered by Service Contract 72 held by
the group of businessman Manuel Pangilinan.

The area is estimated to contain prospective resources of as much as 16.6

trillion cubic feet of gas and 416 million barrels of oil.

Whether amendments to EPIRA would push through in Congress remains to

be seen.

In the meantime, electricity consumers, including Meralco’s 5.3 million

customers, would have to brace for higher electricity bills as the power
distributor is determined to recover costs once the Supreme Court’s
temporary restraining order is lifted.